A preapproved mortgage with a co-signer simply means that a lender has approved a mortgage that has one or more borrowers. A co-signer can be a spouse, a family member or a friend. When a lender preapproves a mortgage, the lender has determined how much it will lend the bprrpwers based on the preliminary information provided. Although preapproved, in the end, the borrower, including the co-signers, must qualify for the mortgage regardless of the initial preapproval.
Co-signers to a mortgage are equally responsible for the payment of a mortgage regardless of whether one party makes a private agreement to pay the mortgage alone. Therefore, lenders will consider the income and debt of each co-signer when determining whether the borrowers qualify. With the economic slump in the real estate market, lenders pay much more attention to the ability of borrowers to repay the loan. Therefore, savvy borrowers should be prepared to offer documentation that proves his income.
Before a lender will preapprove a mortgage, all signatories to the loan are required to provide evidence of income. Most lenders will require copies of recent pay stubs and bank statements, tax returns for the past two years and other proof if a borrower is self-employed. The lender will also look at the credit report of each borrower. A negative credit history, especially now that borrowers are more closely scrutinized, will heavily influence whether a lender will preapprove a mortgage application.
The terms of a preapproved mortgage depends on factors such as the income, debt and credit. The debt-to-income ratio and the credit score of each co-signer all play a role in the amount the lender will approve. For instance, a high debt-to-income ratio will lower the mortgage amount because the borrowers have less money to allocate to the mortgage. Although a preapproval letter is for a specified amount, it does not lock in an interest rate, and by the time borrowers obtain a mortgage, it is possible that a change in the interest rate can change the loan amount and the monthly payment amount.
A preapproval letter does not obligate the lender to offer a loan nor does it bind borrowers to accept a mortgage from a particular lender. Instead, a preapproval letter offers homesellers proof that potential borrowers are qualified for a specified amount. The letter is not open ended; most lenders usually will only leave the offer open for no more than 90 days. It is possible, however, to ask the lender to extend the preapproval to a later date.
Jessica McElrath has been a freelance writer since 2000. McElrath is the author of "The Everything John F. Kennedy Book" and "The Everything Martin Luther King Jr. Book." McElrath has a Bachelor of Arts in history from the University of California at Berkeley and a Juris Doctor from Santa Clara University School of Law.